1. To clarify on 'date acquired' - this would be the date when it was originally purchased at an auction (2006), and NOT the date it was converted to a rental (2008). Is that correct?
That is correct. Now if after you purchased it in 2006 and before you placed it in service in 2008, if you did any property improvements, those get added to your cost basis. Example:
Purchased in 2006 for $100,000. In 2007 you replaced the central A/C with a completely new system at a cost of 10,000. Your cost basis in the property is now $110,000. So that's what you would use as your cost basis when you placed the property in service in 2008.
2. To clarify on cost of land - I am still not clear on how the cost of land is determined when placing the unit in service?
I don't see the cost of land broken out separately in the auction documents (assume the auction sale price was $400K, which does not include closing costs).
The property tax bill is only used for determining what percentage of your cost basis is applied to the land. You will never use any numbers from the property tax bill on the actual tax return that you file. The program will ask you for property tax values only for the purpose of determining percentages.
Lets assume my numbers above, and that you paid $100,000 for the property in 2006. You would look at the most recent property tax bill - which if you had done this back when you were supposed to, would be the 2008 or 2009 tax bill; whichever you had in your hand at tax time.
Now lets say the property tax bill assessed the land at $25K and the structure at $45K for a total property tax assessed value of $70K. The simple math of 25/70 shows the land tax value is 35.7% of the total tax value. You paid $100,000 for the property, and 35.7% of that is $35,700. So you'd allocate $35,700 to the land. That leaves $64,300 for the structure.
But wait! You put in a new central air unit in 2007 at a cost of $10,000. Since the A/C is in fact "a physical part of" the structure now, that $10K gets added to your structure value, bringing the value of the structure to $74,300.
When entered into TurboTax, you'd enter $110,000 in the "cost" box (price you paid plus the cost of the A/C) and you'd enter $35,700 in the "cost of land" box. The program (not you) will do the math and assign $74,300 to the structure, and that's the amount that gets depreciated over the next 27.5 years.
Since land is never depreciated, it's value will remain at $35,700 for so long as you own the property. Even if you do land improvements later, it doesn't change that original value (which is not depreciated). A land improvement would just get entered as a totally separate asset that's classified as land so it's not depreciated, and still adds to your cost basis.
